Coinbase to remove Binance US dollar (BUSD) support after regulatory pressure

Cryptocurrency exchange Coinbase warned its customers Monday that it will suspend trading in Binance USD (BUSD) in less than a month, two weeks after Paxos Trust revealed it would stop issuing the Binance-branded stablecoin, citing regulatory pressure.

Coinbase’s announcement follows a recent internal review, the San Francisco-based exchange said on Twitter, adding that it will suspend trading in BUSD on March 13.

“Our determination to suspend trading in BUSD is based on our own internal monitoring and review processes,” a Coinbase spokesperson told Decrypt. “Upon reviewing BUSD, we have determined that it no longer meets our listing criteria and will be discontinued.”

Earlier this month, Paxos said it would “terminate its relationship with Binance” ahead of a lawsuit filed by the Securities and Exchange Commission over the issuance of BUSD, which aims to track the price of dollars through reserves of financial assets. The company confirmed that the Securities and Exchange Commission plans to sue Paxos for violating investor protection laws Decode.

Coinbase’s decision to suspend trading in BUSD is likely an attempt to avoid scrutiny from regulators who could claim that the exchange facilitated the sale of unregulated securities, according to Timothy Cradle, Director of Regulatory Affairs for Blockchain Intelligence Group.

“They may have come to the same conclusion that I think most reasonable people would,” Cradle said. “This will end in a settlement, a cease and desist thing will be permanent, and Paxos will have to register with the SEC to re-flip the coin.”

Cradle said exchanges took similar action in 2020 after the Securities and Exchange Commission accused Ripple Labs of racking up $1.3 billion in unregistered security sales through the XRP token. Several exchanges, including Coinbase, suspended XRP after the lawsuit was announced. The dispute between Ripple Labs and the SEC continues today.

The Paxos Trust has owned and operated BUSD since its inception in 2019, when the blockchain infrastructure platform entered into a licensing agreement with Binance, the largest cryptocurrency exchange by volume. Coinbase started listing BUSD on its platform in April last year.

Binance founder and CEO Changpeng Zhao stated that Paxos was also ordered to stop issuing BUSD by one of the main regulators, the New York Department of Financial Services (NYDFS).

Although Paxos monitors support for BUSD issued on Ethereum, it does not do the same for BUSD issued by Binance on its proprietary network, Binance Smart Chain.

In order to maintain the legitimacy of BUSD flowing onto the Binance network, the exchange claims that it holds tokens that are fully collateralized with BUSD regulated by Paxos. However, the backing has fallen above $1 billion on multiple occasions, Binance admitted, saying it experienced “delays” in raising adequate capital.

Binance did not immediately respond to Decrypt’s requests for comment.

BUSD is the third largest stablecoin by market capitalization with a total value of about $10 billion, according to data from Queen Gekkobehind Tether’s USDT and USDC stablecoins.